IEA Trims Oil Growth Forecast for 2005; Sees Rebound in 2006

13 July 2005

After raising its forecast for growth in oil demand in the second half of 2005 by 200,000 barrels per day last month, the IEA trimmed the forecast of demand for 2005 back down to 83.9 million barrels of oil per day in its latest Oil Market Report.

Demand in the fourth quarter of 2005 should spike to 85.9 million barrels a day, according to the report. The agency also forecast a drop in supply of 155,000 barrels per day.

In its first projection for 2006, however, the IEA forecasts that growth in demand will rebound, with average consumption hitting 85.7 million barrels per day for the year.

The IEA lowered 2005 demand mostly because of revisions to data for earlier years. The change resulted in lower 2005 growth for the US and China, the world’s two top consumers. Forecast increases in US demand dropped to 0.8% from 1.4%, while the forecast increase in demand for China dropped to 5.5% from 7.1% in last month’s report.

The IEA forecasts that Chinese demand growth will jump back up to 7.2% percent in 2006. In 2004, China’s demand increased 15%.

The IEA expects supply from non-OPEC countries to increase 1.4 mbpd in 2006 from this year’s 0.9 mbpd to average 52.4 mbpd. This increase in supply would essentially match what the IEA sees as the growth in demand for 2006, leaving the call on OPEC—the amount of oil OPEC needs to provide to the global market—basically unchanged from this year.

The growth in OECD total industry oil stocks increased by 78 million barrels in May to an estimated 2,658 million barrels, or 139 million barrels above their position last year. The build in stocks, combined with downward revisions to demand, raised forward cover—the number of days the demand for which is covered by oil stocks—to 54 days in May, up from 53 days in April and 2.5 days above levels of a year ago.

Nevertheless, with the potential for disruption high, and the margin between supply and demand still close, oil prices show no signs of major decrease. The prospect for more oil supply and larger inventories are “unlikely to immediately cool the market’s fever,” according to the IEA.

This morning, with Emily gaining strength in the Atlantic and aimed for the Gulf, oil prices began rising again.

“We’ve seen oil go from $20 a barrel to $60 a barrel without any government saying they will take serious steps to curb demand,“ said Edouard Carmignac, chief investment officer for Carmignac Gestion, which manages about $3 billion in Paris, 38 percent of that in energy stocks. “We may have to see a price of $80 or $90 a barrel to see any real impact. That could very easily happen, and that’s when it will really start to hurt.” (Bloomberg)

Comments

So demand for June 05 is less than Feb 05? That's great news. Even if demand is reduced slowly but surely, it'll have a positive impact (well, a less-negative impact) on foreign policy, atmospheric condition, trade deficit, etc.

The supply deficit earlier this year was probably due to Saudi production cut backs. With demand growing in China at only 5.5% does not bode well for the small cushion in oil inventories. The trend is for demand to grow beyond even Saudi's ability to pump.

Looks like the IEA is making these numbers up. Last year it showed that non-opec production was going down, this year there has been no rebound in production, so non-opec production is still lower. At the same time last year IEA told us that Opec would step up production in view of rising demand. Now that the world clearly knows this not to be the case, the IEA is suddenly claiming that NON-Opec countries will step up production. I take their demand forecasts pretty seriously, but they are pulling supply figures out of their ass.